SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
April 25, 2019
ALLIANCE DATA SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in Charter)
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DELAWARE
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001-15749
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31-1429215
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(State or Other Jurisdiction
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(Commission
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(IRS Employer
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of Incorporation)
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File Number)
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Identification No.)
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7500 DALLAS PARKWAY, SUITE 700
PLANO, TEXAS 75024
(Address and Zip Code of Principal Executive Offices)
(214) 494-3000
(Registrant’s Telephone Number, including Area Code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the Registrant under any of the
following provisions:
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[ ]
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Written communications pursuant to Rule 425 under the Securities Act
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[ ]
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act
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[ ]
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
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[ ]
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of
this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
ITEM 2.02. Results of Operations and Financial Condition
On April 25, 2019, Alliance Data Systems Corporation (the "Company") issued a press release regarding its results of operations
for the first quarter ended March 31, 2019. A copy of this press release is furnished as Exhibit 99.1.
ITEM 7.01. Regulation FD Disclosure
On April 25, 2019, the Company issued a press release regarding its results of operations for the first quarter ended March 31,
2019. A copy of this press release is furnished as Exhibit 99.1.
Attached as Exhibit 99.2 is a presentation to be given to investors and others by senior officers of the Company.
ITEM 9.01. Financial Statements and Exhibits
(d) Exhibits
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Exhibit No.
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Document Description
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Press Release dated April 25, 2019 announcing the results of operations for the first quarter ended March 31, 2019.
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Investor Presentation Materials.
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Note: The information
contained in this report (including Exhibits 99.1 and 99.2) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
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Alliance Data Systems Corporation
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Date: April 25, 2019
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By:
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/s/ Charles L. Horn
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Charles L. Horn
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Executive Vice President and
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Chief Financial Officer
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Exhibit 99.1
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Contacts:
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UInvestors/Analysts
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Tiffany Louder
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Alliance Data
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214-494-3048
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Tiffany.Louder@alliancedata.com
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UMedia
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Shelley Whiddon
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Alliance Data
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214-494-3811
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Shelley.Whiddon@alliancedata.com
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Alliance Data Reports First Quarter 2019
Results
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·
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Revenue Decreases 3 Percent to $1.33 Billion
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·
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EPS Increases 3 Percent to $3.28
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·
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Core EPS Decreases 6 Percent to $3.72
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·
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Epsilon Reclassified as Discontinued Operations Due to Pending Sale to Publicis
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Plano, TX, April 25, 2019 – Alliance
Data Systems Corporation (NYSE: ADS), a leading global provider of data-driven marketing and loyalty solutions, today announced results for the quarter ended March 31, 2019.
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SUMMARY
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Quarter Ended March 31,
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||||||||||||
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(in millions, except per share amounts)
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2019
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2018
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% Change
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||||||||||
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Revenue
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$
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1,334
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$
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1,382
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-3
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%
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|||||||
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Income from continuing operations
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$
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174
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$
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176
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-1
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%
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|||||||
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Net income
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$
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149
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$
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164
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-9
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%
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|||||||
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Income from continuing operations per diluted share (“EPS”)
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$
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3.28
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$
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3.17
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+3
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%
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|||||||
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Net income per diluted share
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$
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2.80
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$
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2.95
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-5
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%
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|||||||
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Diluted shares outstanding
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53.2
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55.7
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|||||||||||
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*******************************
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||||||||||||
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Supplemental Non-GAAP Metrics (a):
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|||||||||||||
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Adjusted EBITDA
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$
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423
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$
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435
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-3
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%
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|||||||
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Adjusted EBITDA, net of funding costs
(“adjusted EBITDA, net”)
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$
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317
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$
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347
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-9
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%
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|||||||
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Core earnings per diluted share (“core EPS”)
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$
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3.72
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$
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3.95
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-6
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%
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|||||||
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(a)
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See “Financial Measures” for a discussion of non-GAAP financial measures.
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1
Alliance Data Systems Corporation
April 25, 2019
“As previously announced, the Company has signed a definitive agreement to sell Epsilon for $4.4
billion. After taxes and transaction costs, net proceeds are expected to be approximately $3.5 billion. The Company expects to use transaction proceeds to pay down at least $1.9 billion of senior debt (approximately $102 million in annual cash
interest expense savings) and repurchase shares. These actions, coupled with meaningful expense reductions at corporate, are expected to result in a pro forma full–year run-rate1 in excess of our original $22.00 core EPS guidance.”
Heffernan continued, “Moving beyond Epsilon, the Company has additional initiatives underway which will
further simplify the narrative as well as focus capital on the highest earning and growth assets. Further information will be provided when appropriate.”
1 Assumes use of proceeds/expense reductions are effectuated 1/1/2019.
CONSOLIDATED RESULTS
Revenue decreased 3 percent to $1.33 billion, while EPS increased 3 percent to $3.28 for the first
quarter of 2019. The effective tax rate for EPS was approximately 16 percent, compared to approximately 27 percent for the first quarter of 2018, due to the release of certain tax reserves. Core EPS decreased 6 percent to $3.72 for the first
quarter of 2019, while adjusted EBITDA, net decreased 9 percent to $317 million for the first quarter of 2019.
SEGMENT RESULTS
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Quarter Ended March 31,
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||||||||||||
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(in millions)
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2019
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2018
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% Change
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|||||||||
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Revenue:
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||||||||||||
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LoyaltyOne
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$
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204
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$
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226
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-10
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%
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||||||
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Card Services
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$
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1,130
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$
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1,155
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-2
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%
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||||||
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Total revenue
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$
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1,334
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$
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1,381
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-3
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%
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||||||
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Adjusted EBITDA, net:
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||||||||||||
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LoyaltyOne
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$
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55
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$
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54
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+2
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%
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Card Services
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$
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295
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$
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319
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-7
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%
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Corporate/other
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$
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(33
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)
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$
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(26
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)
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Total adjusted EBITDA, net
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$
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317
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$
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347
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-9
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%
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Discontinued Operations:
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Epsilon revenue
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$
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508
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$
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509
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0
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%
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Epsilon adjusted EBITDA
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$
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80
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$
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92
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-13
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%
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Epsilon core EPS (a)
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$
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0.35
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$
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0.49
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-29
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%
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(a)
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Interest expense associated with the senior debt to be retired has been allocated to discontinued operations for both periods
presented.
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2
Alliance Data Systems Corporation
April 25, 2019
Card Services: Revenue decreased 2 percent to $1.13 billion and adjusted EBITDA, net decreased 7 percent to $295 million for the first quarter of 2019. Gross yields decreased 70 basis points to 24.1 percent on
normalized average card receivables growth of 1 percent (card receivables plus held-for-sale receivables). The loan loss provision decreased 25 percent to $252 million as a result of lower reservable card receivables and improving principal loss
rate trends. Operating expenses increased $65 million to $505 million, primarily due to an approximate $40 million increase in mark-to-market charges on held-for-sale receivables.
2019 Guidance Adjusted for Discontinued Operations
Revised guidance is revenue of $5.84 billion, up 4 percent over 2018, and core EPS of $18.47, down 4
percent compared to 2018. Core EPS growth is expected to be muted, especially in the first-half of the year, as the Company completes the divestiture of non-strategic held-for-sale portfolios, which began in the second-half of 2018.
Revised guidance does not include the anticipated benefits of share repurchases as part of the use of
proceeds from the expected Epsilon sale, nor related lower corporate expense. The Company expects the benefits to be accretive on a pro forma run-rate basis to the original core EPS guidance of $22.00 for 2019.
3
Alliance Data Systems Corporation
April 25, 2019
Forward-Looking Statements
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give our expectations or forecasts of future events and can generally be identified by the use of words such as “believe,” “expect,” “anticipate,”
“estimate,” “intend,” “project,” “plan,” “likely,” “may,” “should” or other words or phrases of similar import. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking
statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding additional strategic initiatives, the pending Epsilon transaction and whether closing conditions for such transaction will be
satisfied or waived and the expected use of proceeds therefrom, our expected operating results, future economic conditions including currency exchange rates, future dividend declarations and the guidance we give with respect to our anticipated
financial performance.
We believe that our expectations are based on reasonable assumptions. Forward-looking statements,
however, are subject to a number of risks and uncertainties that could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this release, and no assurances can be given that our
expectations will prove to have been correct. These risks and uncertainties include, but are not limited to, factors set forth in the Risk Factors section in our Annual Report on Form 10-K for the most recently ended fiscal year, which may be
updated in Item 1A of, or elsewhere in, our Quarterly Reports on Form 10-Q filed for periods subsequent to such Form 10-K. Further risks and uncertainties include, but are not limited to, the pending transaction involving Epsilon, whether such
transaction will be completed, the possibility that closing conditions for the transaction may not be satisfied or waived, the impact of additional strategic initiatives on us or our business if any transactions are undertaken, and whether the
benefits of such transactions can be achieved.
Our forward-looking statements speak only as of the date made, and we undertake no obligation, other
than as required by applicable law, to update or revise any forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise.
Financial Measures
In addition to the results presented in accordance with generally accepted accounting principles, or
GAAP, the Company may present financial measures that are non-GAAP measures, such as constant currency financial measures, adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, net of funding costs, core earnings and core earnings per diluted
share (core EPS). Constant currency excludes the impact of fluctuations in foreign exchange rates. The Company calculates constant currency by converting our current period local currency financial results using the prior period exchange rates. The
Company uses adjusted EBITDA and adjusted EBITDA, net as an integral part of internal reporting to measure the performance and operational strength of reportable segments and to evaluate the performance of senior management. Adjusted EBITDA
eliminates the uneven effect across all reportable segments of non-cash depreciation of tangible assets and amortization of intangible assets, including certain intangible assets that were recognized in business combinations, and the non-cash
effect of stock compensation expense. Similarly, core earnings and core EPS eliminate non-cash or non-operating items, including, but not limited to, stock compensation expense, amortization of purchased intangibles, restructuring or strategic
transaction costs, amortization of debt issuance and hedging costs. The Company believes that these non-GAAP financial measures, viewed in addition to and not in lieu of the Company’s reported GAAP results, provide useful information to investors
regarding the Company’s performance and overall results of operations.
4
Alliance Data Systems Corporation
April 25, 2019
Reconciliation of Non-GAAP Financial Measures
Reconciliations to comparable GAAP financial measures are available in the accompanying schedules, which
are posted as part of this earnings release in both the News and Investors sections on the Company’s website (www.alliancedata.com). No reconciliation is
provided with respect to forward-looking annual guidance for 2019 core EPS as the Company cannot reliably predict all necessary components or their impact to reconcile core EPS to GAAP EPS without unreasonable effort. The events necessitating a
non-GAAP adjustment are inherently unpredictable and may have a material impact on the Company’s future results.
The financial measures presented are consistent with the Company’s historical financial reporting
practices. Core earnings and core EPS represent performance measures and are not intended to represent liquidity measures. The non-GAAP financial measures presented herein may not be comparable to similarly titled measures presented by other
companies, and are not identical to corresponding measures used in other various agreements or public filings.
Conference Call
Alliance Data will host a conference call on Thursday, April 25, 2019 at 8:30 a.m. (Eastern Time) to
discuss the Company’s first-quarter 2019 results. The conference call will be available via the Internet at www.alliancedata.com. There will be several slides accompanying the webcast. Please go to the website at least 15 minutes prior to the call
to register, download and install any necessary software. The recorded webcast will also be available on the Company’s website.
If you are unable to participate in the conference call, a replay will be available. To access the
replay, please dial (855) 859-2056 or (404) 537-3406 and enter “7599344”. The replay will be available at approximately 11:45 a.m. (Eastern Time) on Thursday, April 25, 2019.
About Alliance Data
Alliance Data® (NYSE: ADS) is a leading global provider of data-driven marketing and loyalty
solutions serving large, consumer-based industries. The Company creates and deploys customized solutions, enhancing the critical customer marketing experience; the result is measurably changing consumer behavior while driving business growth and
profitability for some of today's most recognizable brands. Alliance Data helps its clients create and increase customer loyalty through solutions that engage millions of customers each day across multiple touch points using traditional, digital,
mobile and emerging technologies. An S&P 500, FORTUNE 500 and FORTUNE 100 Best Companies to Work For company headquartered in Plano, Texas, Alliance Data consists of three businesses that together employ approximately 20,000 associates at more
than 100 locations worldwide.
Alliance Data’s card services business is a provider of market-leading private label, co-brand, and
business credit card programs. Epsilon® is a leading provider of multichannel, data-driven technologies and marketing services, and also includes Conversant®, a leader in personalized digital marketing. LoyaltyOne®
owns and operates the AIR MILES® Reward Program, Canada’s most recognized loyalty program, and Netherlands-based BrandLoyalty, a global provider of tailor-made loyalty programs for grocers.
Follow Alliance Data on Twitter, Facebook, LinkedIn, Instagram and YouTube.
5
Alliance Data Systems Corporation
April 25, 2019
ALLIANCE DATA SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
|
|
Three Months Ended
March 31,
|
|||||||
|
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2019
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2018
|
||||||
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Revenue
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$
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1,334.2
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$
|
1,381.7
|
||||
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Operating expenses:
|
||||||||
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Cost of operations
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678.8
|
623.0
|
||||||
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Provision for loan loss
|
252.1
|
337.7
|
||||||
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Depreciation and amortization
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46.4
|
48.7
|
||||||
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Total operating expenses
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977.3
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1,009.4
|
||||||
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Operating income
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356.9
|
372.3
|
||||||
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Interest expense, net:
|
||||||||
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Securitization funding costs
|
57.3
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52.1
|
||||||
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Interest expense on deposits
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48.7
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35.5
|
||||||
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Interest expense on long-term and other debt, net
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43.5
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44.2
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||||||
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Total interest expense, net
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149.5
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131.8
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||||||
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Income from continuing operations before income taxes
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$
|
207.4
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$
|
240.5
|
||||
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Income tax expense
|
33.1
|
64.0
|
||||||
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Income from continuing operations
|
174.3
|
176.5
|
||||||
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Loss from discontinued operations, net of taxes
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(25.2
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)
|
(12.6
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)
|
||||
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Net income
|
$
|
149.1
|
$
|
163.9
|
||||
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Per share data:
|
||||||||
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Weighted average shares outstanding – basic
|
53.0
|
55.4
|
||||||
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Weighted average shares outstanding - diluted
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53.2
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55.7
|
||||||
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Basic – Income from continuing operations
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$
|
3.29
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$
|
3.19
|
||||
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Basic – Loss from discontinued operations
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(0.48
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)
|
(0.23
|
)
|
||||
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Basic – Net income
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$
|
2.81
|
$
|
2.96
|
||||
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Diluted – Income from continuing operations
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$
|
3.28
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$
|
3.17
|
||||
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Diluted – Loss from discontinued operations
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(0.48
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)
|
(0.22
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)
|
||||
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Diluted – Net income
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$
|
2.80
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$
|
2.95
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||||
6
Alliance Data Systems Corporation
April 25, 2019
ALLIANCE DATA SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
|
March 31,
2019
|
December 31,
2018
|
|||||||
|
Assets
|
||||||||
|
Cash and cash equivalents
|
$
|
3,685.0
|
$
|
3,817.4
|
||||
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Credit card and loan receivables:
|
||||||||
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Credit card and loan receivables
|
16,850.5
|
17,855.0
|
||||||
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Allowance for loan loss
|
(1,021.1
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)
|
(1,038.3
|
)
|
||||
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Credit card and loan receivables, net
|
15,829.4
|
16,816.7
|
||||||
|
Credit card receivables held for sale
|
1,848.9
|
1,951.6
|
||||||
|
Redemption settlement assets, restricted
|
576.1
|
558.6
|
||||||
|
Right of use assets - operating
|
271.2
|
—
|
||||||
|
Intangible assets, net
|
189.6
|
217.4
|
||||||
|
Goodwill
|
950.0
|
954.8
|
||||||
|
Other assets
|
1,858.2
|
1,913.8
|
||||||
|
Assets of discontinued operations
|
4,224.7
|
4,157.4
|
||||||
|
Total assets
|
$
|
29,433.1
|
$
|
30,387.7
|
||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Deferred revenue
|
$
|
877.3
|
$
|
875.3
|
||||
|
Deposits
|
11,292.0
|
11,793.7
|
||||||
|
Non-recourse borrowings of consolidated securitization entities
|
6,775.5
|
7,651.7
|
||||||
|
Long-term and other debt
|
5,881.5
|
5,725.4
|
||||||
|
Operating lease liabilities
|
321.2
|
—
|
||||||
|
Other liabilities
|
1,654.0
|
1,703.8
|
||||||
|
Liabilities of discontinued operations
|
392.1
|
305.7
|
||||||
|
Total liabilities
|
27,193.6
|
28,055.6
|
||||||
|
Stockholders’ equity
|
2,239.5
|
2,332.1
|
||||||
|
Total liabilities and stockholders’ equity
|
$
|
29,433.1
|
$
|
30,387.7
|
||||
7
Alliance Data Systems Corporation
April 25, 2019
ALLIANCE DATA SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
|
Three Months Ended
March 31,
|
|||||||||
|
|
2019
|
2018
|
||||||||
|
|
||||||||||
|
Cash Flows from Operating Activities:
|
||||||||||
|
Net income
|
$
|
149.1
|
$
|
163.9
|
||||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||
|
Depreciation and amortization
|
118.9
|
121.7
|
||||||||
|
Deferred income taxes
|
(35.0
|
)
|
(16.2
|
)
|
||||||
|
Provision for loan loss
|
252.1
|
337.7
|
||||||||
|
Non-cash stock compensation
|
21.1
|
25.5
|
||||||||
|
Amortization of deferred financing costs
|
11.0
|
11.4
|
||||||||
|
Change in operating assets and liabilities
|
8.7
|
(108.0
|
)
|
|||||||
|
Originations of loan receivables held for sale
|
—
|
(2,271.7
|
)
|
|||||||
|
Sales of loan receivables held for sale
|
—
|
2,312.8
|
||||||||
|
Other
|
84.9
|
72.8
|
||||||||
|
Net cash provided by operating activities
|
610.8
|
649.9
|
||||||||
|
Cash Flows from Investing Activities:
|
||||||||||
|
Change in redemption settlement assets
|
(0.1
|
)
|
(14.5
|
)
|
||||||
|
Change in credit card and loan receivables
|
758.2
|
470.5
|
||||||||
|
Capital expenditures
|
(38.7
|
)
|
(44.7
|
)
|
||||||
|
Other
|
(1.9
|
)
|
(18.4
|
)
|
||||||
|
Net cash provided by investing activities
|
717.5
|
392.9
|
||||||||
|
Cash Flows from Financing Activities:
|
||||||||||
|
Borrowings under debt agreements
|
1,045.1
|
685.0
|
||||||||
|
Repayments of borrowings
|
(870.9
|
)
|
(706.5
|
)
|
||||||
|
Net decrease in deposits
|
(502.6
|
)
|
(448.4
|
)
|
||||||
|
Non-recourse borrowings of consolidated securitization entities
|
1,122.2
|
905.0
|
||||||||
|
Repayments/maturities of non-recourse borrowings of consolidated securitization entities
|
(1,997.5
|
)
|
(1,590.0
|
)
|
||||||
|
Payment of deferred financing costs
|
(5.4
|
)
|
(3.5
|
)
|
||||||
|
Purchase of treasury shares
|
(222.8
|
)
|
—
|
|||||||
|
Dividends paid
|
(33.9
|
)
|
(31.7
|
)
|
||||||
|
Other
|
(17.2
|
)
|
(23.7
|
)
|
||||||
|
Net cash used in financing activities
|
(1,483.0
|
)
|
(1,213.8
|
)
|
||||||
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
3.0
|
(1.7
|
)
|
|||||||
|
Change in cash, cash equivalents and restricted cash
|
(151.7
|
)
|
(172.7
|
)
|
||||||
|
Cash, cash equivalents and restricted cash at beginning of period
|
3,967.7
|
4,314.7
|
||||||||
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
3,816.0
|
$
|
4,142.0
|
||||||
Note: The cash flow statement is presented with
the combined cash flows from discontinued operations with cash flows from continuing operations within each cash flow statement category.
8
Alliance Data Systems Corporation
April 25, 2019
ALLIANCE DATA SYSTEMS CORPORATION
SUMMARY FINANCIAL HIGHLIGHTS
(In millions)
(Unaudited)
|
Three Months Ended March 31,
|
||||||||||||
|
2019
|
2018
|
Change
|
||||||||||
|
Segment Revenue:
|
||||||||||||
|
LoyaltyOne
|
$
|
203.8
|
$
|
226.3
|
(10
|
)%
|
||||||
|
Card Services
|
1,130.4
|
1,155.2
|
(2
|
)
|
||||||||
|
Corporate/Other
|
—
|
0.2
|
nm*
|
|||||||||
|
Total
|
$
|
1,334.2
|
$
|
1,381.7
|
(3
|
)%
|
||||||
|
Segment Adjusted EBITDA, net:
|
||||||||||||
|
LoyaltyOne
|
$
|
55.1
|
$
|
53.9
|
2
|
%
|
||||||
|
Card Services
|
294.9
|
318.6
|
(7
|
)
|
||||||||
|
Corporate/Other
|
(33.5
|
)
|
(25.5
|
)
|
(30
|
)
|
||||||
|
Total
|
$
|
316.5
|
$
|
347.0
|
(9
|
)%
|
||||||
|
Key Performance Indicators:
|
||||||||||||
|
Credit sales
|
$
|
6,315
|
$
|
6,806
|
(7
|
)%
|
||||||
|
Credit sales - active
|
$
|
5,884
|
$
|
5,636
|
4
|
%
|
||||||
|
Average receivables
|
$
|
16,850
|
$
|
17,722
|
(5
|
)%
|
||||||
|
Gross yield
|
24.1
|
%
|
24.8
|
%
|
(0.7
|
)%
|
||||||
|
Net principal loss rate
|
6.4
|
%
|
6.7
|
%
|
(0.3
|
)%
|
||||||
|
Delinquency rate
|
5.2
|
%
|
5.3
|
%
|
(0.1
|
)%
|
||||||
|
AIR MILES reward miles issued
|
1,258
|
1,226
|
3
|
%
|
||||||||
|
AIR MILES reward miles redeemed
|
1,089
|
1,178
|
(8
|
)%
|
||||||||
* nm-not meaningful
9
Alliance Data Systems Corporation
April 25, 2019
ALLIANCE DATA SYSTEMS CORPORATION
RECONCILIATION OF NON-GAAP INFORMATION
(In millions, except per share amounts)
(Unaudited)
|
|
Three Months Ended
March 31,
|
|||||||||
|
|
2019
|
2018
|
||||||||
|
|
||||||||||
|
Adjusted EBITDA and Adjusted EBITDA, net:
|
||||||||||
|
Income from continuing operations
|
$
|
174.3
|
$
|
176.5
|
||||||
|
Income tax expense
|
33.1
|
64.0
|
||||||||
|
Total interest expense, net
|
149.5
|
131.8
|
||||||||
|
Depreciation and other amortization
|
20.6
|
19.3
|
||||||||
|
Amortization of purchased intangibles
|
25.8
|
29.4
|
||||||||
|
Stock compensation expense
|
11.3
|
13.6
|
||||||||
|
Restructuring charges (1)
|
7.9
|
—
|
||||||||
|
Adjusted EBITDA
|
$
|
422.5
|
$
|
434.6
|
||||||
|
Less: Funding costs (2)
|
106.0
|
87.6
|
||||||||
|
Adjusted EBITDA, net of funding costs
|
$
|
316.5
|
$
|
347.0
|
||||||
|
Core Earnings:
|
||||||||||
|
Income from continuing operations
|
$
|
174.3
|
$
|
176.5
|
||||||
|
Add back: non-cash/ non-operating items:
|
||||||||||
|
Stock compensation expense
|
11.3
|
13.6
|
||||||||
|
Amortization of purchased intangibles
|
25.8
|
29.4
|
||||||||
|
Non-cash interest (3)
|
9.5
|
9.9
|
||||||||
|
Restructuring charges (1)
|
7.9
|
—
|
||||||||
|
Income tax effect (4)
|
(31.0
|
)
|
(9.4
|
)
|
||||||
|
Core earnings
|
$
|
197.8
|
$
|
220.0
|
||||||
|
Weighted average shares outstanding - diluted
|
53.2
|
55.7
|
||||||||
|
Core earnings per share - diluted
|
$
|
3.72
|
$
|
3.95
|
||||||
|
(1)
|
Represents costs associated with the wind-down of Merison, a Netherlands-based loyalty marketer within BrandLoyalty.
|
|
(2)
|
Represents interest expense on deposits and securitization funding costs.
|
|
(3)
|
Represents amortization of debt issuance costs.
|
|
(4)
|
Represents the tax effect including the related non-GAAP measure adjustments using the expected effective annual tax rate.
|
10
Alliance Data Systems Corporation
April 25, 2019
|
|
Three Months Ended March 31, 2019
|
|||||||||||||||
|
|
LoyaltyOne
|
Card
Services
|
Corporate/
Other
|
Total
|
||||||||||||
|
Operating income (loss)
|
$
|
24.1
|
$
|
372.9
|
$
|
(40.1
|
)
|
$
|
356.9
|
|||||||
|
Depreciation and amortization
|
20.1
|
24.3
|
2.0
|
46.4
|
||||||||||||
|
Stock compensation expense
|
3.0
|
3.7
|
4.6
|
11.3
|
||||||||||||
|
Restructuring charges
|
7.9
|
—
|
—
|
7.9
|
||||||||||||
|
Adjusted EBITDA
|
55.1
|
400.9
|
(33.5
|
)
|
422.5
|
|||||||||||
|
Less: Funding costs
|
—
|
106.0
|
—
|
106.0
|
||||||||||||
|
Adjusted EBITDA, net
|
$
|
55.1
|
$
|
294.9
|
$
|
(33.5
|
)
|
$
|
316.5
|
|||||||
|
|
Three Months Ended March 31, 2018
|
|||||||||||||||
|
|
LoyaltyOne
|
Card
Services
|
Corporate/
Other
|
Total
|
||||||||||||
|
Operating income (loss)
|
$
|
28.3
|
$
|
377.0
|
$
|
(33.0
|
)
|
$
|
372.3
|
|||||||
|
Depreciation and amortization
|
22.0
|
24.8
|
1.9
|
48.7
|
||||||||||||
|
Stock compensation expense
|
3.6
|
4.4
|
5.6
|
13.6
|
||||||||||||
|
Adjusted EBITDA
|
53.9
|
406.2
|
(25.5
|
)
|
434.6
|
|||||||||||
|
Less: Funding costs
|
—
|
87.6
|
—
|
87.6
|
||||||||||||
|
Adjusted EBITDA, net
|
$
|
53.9
|
$
|
318.6
|
$
|
(25.5
|
)
|
$
|
347.0
|
|||||||
11
Exhibit 99.2
Alliance Data NYSE: ADS First Quarter 2019 ResultsApril 25, 2019
11 2 Forward-Looking StatementsThis presentation contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give our expectations or forecasts of future events and can generally be identified by the use of words such as
“believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “plan,” “likely,” “may,” “should” or other words or phrases of similar import. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions
or goals also are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding additional strategic initiatives, the pending Epsilon transaction and whether closing conditions
for such transaction will be satisfied or waived and the expected use of proceeds therefrom, our expected operating results, future economic conditions including currency exchange rates, future dividend declarations and the guidance we give
with respect to our anticipated financial performance. We believe that our expectations are based on reasonable assumptions. Forward-looking statements, however, are subject to a number of risks and uncertainties that could cause actual results
to differ materially from the projections, anticipated results or other expectations expressed in this release, and no assurances can be given that our expectations will prove to have been correct. These risks and uncertainties include, but are
not limited to, factors set forth in the Risk Factors section in our Annual Report on Form 10-K for the most recently ended fiscal year, which may be updated in Item 1A of, or elsewhere in, our Quarterly Reports on Form 10-Q filed for periods
subsequent to such Form 10-K. Further risks and uncertainties include, but are not limited to, the pending transaction involving Epsilon, whether such transaction will be completed, the possibility that closing conditions for the transaction
may not be satisfied or waived, the impact of additional strategic initiatives on us or our business if any transactions are undertaken, and whether the benefits of such transactions can be achieved.Our forward-looking statements speak only as
of the date made, and we undertake no obligation, other than as required by applicable law, to update or revise any forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated
circumstances or otherwise.
Agenda Speakers: Ed Heffernan President and CEO Charles Horn EVP and CFO Consolidated ResultsSegment
Results2019 Outlook2019 Updated Guidance 1 3
Q1, 2019 Consolidated Results(MM, except per share) 2 4 Quarter Ended March
31, 2019 2018 % Change Revenue $1,334 $1,382 -3% Income from continuing operations $174 $177 -1% Income from continuing operations per diluted share (EPS) $3.28 $3.17 +3% Core
EPS $3.72 $3.95 -6% Adjusted EBITDA $423 $435 -3% Adjusted EBITDA, net $317 $347 -9% Diluted shares
outstanding 53.2 55.7 ************************************************************************************* Results Prior to Discontinued Operations Classification Revenue $1,824 $1,884 -3% Core
EPS $4.07 $4.44 -8%
Quarter Ended March 31, 2019 2018 % Change Revenue:
LoyaltyOne® $204 $226 -10% Unfavorable FX of $14mm; shift to net revenue of $9mm Card Services $1,130 $1,155 -2% $1,334 $1,381 -3% Adjusted EBITDA, net: LoyaltyOne $55 $54 +2% Unfavorable
FX of $3mm Card Services $295 $319 -7% Corporate/Other ($33) ($26) Higher medical benefits $317 $347 -9% Q1, 2019 Segment Results(MM) 5
6 Q1, 2019 6 OverallFirst quarter results consistent with guidance of revenue down mid-single digits
and core EPS down high-single digits (includes Epsilon®)Revenue of $1.8 billion, down 3 percentCore EPS of $4.07, down 8 percent 1.3 million shares repurchased during quarter (approximately 2 percent of outstanding)Corporate leverage ratio of
2.4xLoyaltyOneAIR MILES® revenue and adjusted EBITDA down 12 percent and up 7 percent, on constant currency basisRevenue down 3 percent when adjusted for additional merchandise outsourcing, which triggered net revenue presentation under ASC
606AIR MILES issued up 3 percentBurn rate of 87 percent compared to 96 percent last yearLower burn rate pressures revenue growthBrandLoyalty revenue and adjusted EBITDA up 3 percent and 14 percent, respectively, on constant currency
basisExcludes $8 million of restructuring charges at BrandLoyalty in effort to lower fixed cost structure
EpsilonSigned definitive agreement to sell to Publicis GroupeExpect closing by early third quarterKey
considerations:$4.4 billion in purchase consideration ($4.0 billion excluding tax reimbursement)Certainty and speed of close: 100 percent cash, fully committed financingAbility to drive larger ADS-Publicis relationship
post-closingMultiple:Purchase price (with and without tax reimbursement) $4,400mm $4,000mmLTM Epsilon adjusted EBITDA $463mmEpsilon corporate support reduction1 (70mm) Net adjusted EBITDA $393mm $393mmImplied multiple 11.2x 10.2xUse of
proceeds:$3.5 billion in net cash (after taxes and fees)$4.4 billion in proceeds less approximately $100 million in fees and $800 million in taxesNet $400 million of tax leakage ($800 million less $400 million reimbursement) Net proceeds to be
used for debt retirement and share repurchases 1 Expected to be eliminated during the remainder of the year. Q1, 2019 7
Q1, 2019 8 Card ServicesNew client signings: Houzz (e-commerce home furnishings); Sephora (beauty) and
Burlington (high growth off-mall discount department store)Year-to-date signings at $2 billion vintageAttractive and heathier verticals continue to gain share2015-19 client signings now $5 billion of card receivables; full ramp expected to be
$13 billionOmni-channel and strong on-line brands are fueling the growth Active client receivable growth of approximately 11 percent5 percent decline in reported average receivables reflects sale/reclassifications to held-for-sale of
non-strategic clientsExpect to exit 2019 at 15 percent growth rateCredit quality stable to improvingDelinquency rate down 10 basis points to 5.25 percentNet principal loss rate of 6.39 percent vs. 6.68 percent last yearTracking to 6 percent or
better for full yearCommenced retail deposit platform during quarter, a new source of fundingROE target for full-year greater than 30 percent
Quarter Ended March 31, 2019 2018 Change Credit sales $6,315 $6,806 -7% Average
card receivables $16,850 $17,722 -5% Normalized average card receivables1 $18,764 $18,627 +1% Total gross yield (revenue/normalized average card receivables) 24.1% 24.8% -0.7% Operating expenses as % of normalized average card
receivables2 10.1% 8.8% +1.3% Principal loss rates 6.39% 6.68% -0.3% Delinquency rate 5.25% 5.35% -0.1% Return on equity 32% 30% +2% Q1, 2019 Credit Metrics 1 Includes held-for-sale receivables. Drives revenue and
operating expenses.2 Mark-to-market on held-for-sale receivables increased this metric by approximately 85 basis points. 9
Card Services: Average Receivables Growth 10 Reported growth of -5 percentIncludes impact of
discontinued programsActive client growth of +11 percent +11% Active Clients: + Discontinued programs: = Reported: $17.7bn $16.8bn -5% $15.6bn $0bn ~$5bn from 2015+ signings (35 percent growth) Q1, 2018 Q1, 2019 $15.1bn
$16.8bn $2.6bn
Card Services: End of Year Receivables Billion $2.1bnremoved 8 year CAGR of 17% Consistent ROE’s
> than 30 percent or 2-3x industry $17.9 15% exitrate 11
6 Card Services: Principal Loss Rates 2005 - 2007~ 6% At Trend Below Trend 2016~ 5% 2017 ‐ 2019~
6% At Trend Consistent with long-term trend 12 2019
Revenue 2018A 2019G Original $ 7,791 $ 8,100 +4% Less
Epsilon (2,175) (2,257) Revised Guidance $ 5,616 $ 5,843 +4% Core EPS 2018A 2019G Original $22.72 $22.00 -3% Less Epsilon (assumed 1/1/2019): Adjusted
EBITDA ($475) ($474) Depreciation and amortization 115 121 Allocated interest expense ($1.9bn in senior debt) 102 102 Income taxes 62 61 Core earnings ($196) ($190) Diluted
shares outstanding 55.1 53.6 ($3.55) ($3.53) Revised guidance $19.17 $18.47 -4% Projected adjustments (assumed 1/1/2019): Corporate expense reductions (post Epsilon) $1.00
to $1.15 Q1 repurchases (not in original guidance) $0.40 Additional senior debt pay-down - $500 million use of proceeds $0.30 Share repurchases - $1.1bn use of proceeds (example of $190 per share, $170 per share) 1
$2.50 to $2.85 Run-rate core EPS $22.67 to $23.17 Accretion to original guidance 3% to 5% 2019 Revised Guidance 13 1 Accretion depends upon actual repurchase price.
2019 Revised Guidance Reported core EPS Bridging from $18.47 to full-year reported earnings require the
addition of the partial year accretive impacts from the projected adjustments. Timing and share price considerations will impact the final reported earnings and guidance will be adjusted as implemented. Pro forma run-rate core EPS Assumes share
repurchases and corporate expense reductions are also consummated as of January 1, 2019. The Company expects the run-rate to be accretive to the initial $22.00 per share guidance. Run-rate core EPS of $22.67 to $23.17, 3 to 5 percent
accretionGAAP EPS run-rate accretion expected to be 3x core 14 Revised core EPS guidance Revenue of $5.8 billon and core EPS of $18.47. Adjusted for reclassification of Epsilon as discontinued operations as of January 1, 2019. Guidance
related to the Card Services and Loyalty One remains unchanged.
ADS 2.0 - Summary Card Services:Move towards healthier growth verticals working2015-19 client signings:
$5 billion of card receivables increasing to $13 billion when fully rampedDivestiture/reclassification of non-strategic clients completed in fourth quarter of 2018Removes pressure on growthReported card receivables growth should equal active
card receivables growth in fourth quarterTracking to end 2019 with $20.5 billion in card receivables, up 15 percent; strong jump-off point for 2020Credit quality stable to improvingFirst quarter delinquency and net principal loss rates better
than prior yearTarget ROE equal or better than 30 percentLoyaltyOne: Tracking to planEpsilon: Agreement to sell for $4.4 billionOverall:Core EPS run-rate tracking expected to exceed original guidance; GAAP EPS accretion 3x core EPS accretionPro
forma leverage significantly reduced from 2.4x to 1.7x2020: Strong starting point for Card Services with stronger capital structure 15
12 16 Financial MeasuresIn addition to the results presented in accordance with generally accepted
accounting principles, or GAAP, the Company may present financial measures that are non-GAAP measures, such as constant currency financial measures, adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, net of funding costs, core earnings
and core earnings per diluted share (core EPS). Constant currency excludes the impact of fluctuations in foreign exchange rates. The Company calculates constant currency by converting our current period local currency financial results using
the prior period exchange rates. The Company uses adjusted EBITDA and adjusted EBITDA, net as an integral part of internal reporting to measure the performance and operational strength of reportable segments and to evaluate the performance of
senior management. Adjusted EBITDA eliminates the uneven effect across all reportable segments of non-cash depreciation of tangible assets and amortization of intangible assets, including certain intangible assets that were recognized in
business combinations, and the non-cash effect of stock compensation expense. Similarly, core earnings and core EPS eliminate non-cash or non-operating items, including, but not limited to, stock compensation expense, amortization of purchased
intangibles, restructuring or strategic transaction costs, amortization of debt issuance and hedging costs. The Company believes that these non-GAAP financial measures, viewed in addition to and not in lieu of the Company’s reported GAAP
results, provide useful information to investors regarding the Company’s performance and overall results of operations.
Q & A 17